University of New Haven

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University of New Haven

• What Do You Mean Im Overdrawn?
• The Cost of Credit Cards. Isnt it FREE?
• Budgeting.What are You Talking About?

Paul A. Caiafa, CPA, MST September 20, 2007
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Want to be more than 1,700,000 Richer?
Today I will show you how.
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Financial Literacy

• Making sound decisions about money
• Your decisions no one else's

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My Objectives

• Calculate checking account balances.
• Identify reasons for differences between a
  checkbook balance and a bank statement balance.
• Prepare a bank statement reconciliation.
• Explain a credit cards annual percentage rate
  (APR) and calculate the monthly interest rate.
• Calculate simple interest per month (finance
  charge) and the monthly balance for a credit
  card purchase.
• Determine the total amount paid on a credit card
  purchase, including total interest paid.
• Understand what a budget is and how to prepare
  one for yourself.

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Bank Accounts
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What Do You Mean Im Overdrawn?
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CHECKBOOK Commonly-used Terms

• Savings Account
• Passbook Savings
• Statement Savings
• Checking Account
• Money Market Account
• Certificate of Deposit
• Investment or Brokerage Account

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Checking Account Rates and Fees

• SimplyFree Checking
•  25 minimum initial deposit to open account
• No minimum monthly balance
• No monthly maintenance fee
• No monthly fee for eBillPay 

• Interest Checking 
• 25 minimum initial deposit to open account
• 10 monthly maintenance fee
• No monthly fee for eBillPay
• If you maintain a 1,250 minimum daily balance,
  we'll waive the monthly maintenance fee.

• Student Checking
• 25 minimum initial deposit to open account
• No minimum monthly balance
• No monthly maintenance fee
• No monthly fee for eBillPay

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Alphabet Soup
Bank statement A summary of the transactions
for a checking account for a period of time,
usually one month. Bank reconciliation The
process of accounting for the difference between
the bank statement balance and the checkbook
balance. Direct deposit Process in which
employers deposit employee earnings directly to
the employees savings or checking account.
Bank cards Cards used to make transactions and
access cash at ATMs (Automated Teller
Machines). Debit cards Cards used to make a
purchase whereby the purchasers account is
debited (reduced) and the amount is transferred
to the retailers account automatically.
Credit cards Cards used to make purchases up to
a preset dollar limit, called available credit or
credit limit. Outstanding checks Checks that
have been written but not yet cashed at the bank,
and therefore do not appear on a recent bank
statement.
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Alphabet Soup
Deposits in transit Deposits made but not yet
recorded by the bank, and therefore do not appear
on a recent bank statement. Float The time
period from when a check is written to the time
it clears the bank, or is cashed. EFT
Electronic funds transfer transferring money
from one account to another electronically
i.e., without paperwork. Insufficient funds
notice Known as bouncing a check or writing a
bad check, the bank can refuse to honor or
cash a check when the balance in the checking
account is less than the amount of the check.
Overdraft protection A line of credit whereby
banks will transfer money to a depositor s
account when they write a check for more than is
in the account. Stop Payment Order A depositor
orders their bank to not cash a check they have
written.
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Check Point! 1 Mark deposited 500 into his
checking account on May 1st. On May 20th, Mark
wrote check number 100 for 200 for his car
payment, check 101 for 30 to pay the gas bill,
check number 102 for 100 for car insurance, and
check 103 for 50 to pay his credit card
bill. On June 7th, Mark received his bank
statement for the month of May. The bank
statement reported Marks balance to be 250.
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• What is Marks balance according to his records?
• Balance, May 1 500
• Less Check 100, - 200
• Check 101, - 30
• Check 102, - 100
• Check 103, - 50
• Balance, May 31 120

2. What is the dollar difference between Marks
records and the bank statement? 130 250 - 120
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3. What is the most likely reason for the
difference? Outstanding checks 101 (30 for the
gas bill) and 102 (100 for car insurance) total
to the difference in amount, 130.
4. What is the real balance in Marks
account? 120 When the outstanding checks are
cashed, the balance at the bank will be equal to
Marks balance.
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Check Point! 2 Mark has a balance of 300 in his
checking account on August 1st. Mark has direct
deposit and gets paid the 15th of every month and
the last day of every month. His net pay is 900.
From the second paycheck of each month, Mark
uses automatic payroll deductions to pay his 500
monthly mortgage and invest 250 in a mutual
fund. In addition, Mark uses his bank card to
withdraw 100 at the end of every week. 1. What
is the balance in Marks checking account on
August 8th, the end of the first week of the
month? 200 300 Beginning balance - 100
weekly ATM withdrawal
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2. What is the balance in Marks checking account
on August 15th, the end of the second week of the
month? 1,000 200 balance at end of week one
900 direct deposit - 100 weekly ATM withdrawal
3. What is the balance in Marks checking account
on August 22nd, the end of the third week of the
month? 900 1,000 balance at end of week two
(August 15th) - 100 ATM weekly withdrawal
4. What is the balance in Marks checking account
at the end of the month? 950 900 balance at
end of week three 900 direct deposit - 500
mortgage payment - 250 investment - 100 weekly
ATM withdrawal
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Check Point! 3 On December 7th, Mark received
his bank statement in the mail for the month of
November. According to the bank statement, his
balance is 580. However, according to Marks
checkbook his balance is 755. Upon review of the
bank statement, Mark noticed that of the four
checks written in November, one for 80 was not
reported. He also noticed that a 250 deposit
made on December 2nd was not reported and that he
earned interest of 5 and a monthly fee of 10
was charged against his account. Help Mark
reconcile the bank statement balance to his
checkbook balance using the following format. For
each step (see Fast Facts), identify what is
added or subtracted as well as the amount. The
balances are reconciled when the adjusted
balances are the same amount.
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Bank Statement Balance 580 Step 1 Subtract
Outstanding checks - 80 Step 2 Add Deposits
in transit 250 Adjusted Bank Balance 750
Marks Checkbook Balance 755 Step 3 Subtract
Fees - 10 Step 4 Add Interest earned
5 Adjusted Checkbook Balance 750
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THE GREAT TEMPTATION
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The Cost of Credit Cards. Arent they FREE?
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The Real Cost of Credit

• Purchase 1,000
• 17 card
• Minimum payments (2) 20 per month
• Total all payments 1,755
• Almost paid 2x

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Average American Household

• 10,000 in credit card debt

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Credit Card Issues

• Available credit
• Debit cards vs. credit cards
• Annual Percentage Rate
• Fees
• Simple Interest
• Credit card myth
• Tips for paying credit card debt
• When are credit cards and purchases good?

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Behind the Numbers
On September 4th, Annie goes on a back-to-school
shopping spree using her new credit card. She
spends a total of 675. Annie will receive her
first credit card statement on October 4th.
Determine Annies finance charge each month,
including the first month October assuming
she doesnt make any additional purchases, pays
only the monthly minimum of 50 and the issuer of
the credit card charges an APR of 18. (Interest
is based on the Previous Balance.)

• What is the monthly interest rate?
• 18 / 12 months 1.5

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Finance Charge calc. 9.38 625.000.18/12
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2. What is the total amount Annie will actually
pay based on the payment plan she has set up for
herself? 747.35
3. What is the total amount of interest that
Annie will pay? 72.35
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Budgets
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Budgeting.What are You Talking About?
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BUDGETING Commonly-used Terms

• Budget and Budgeting
• Gross Income vs. Take-Home Income

On average, single people spend their income as
follows
Expense Housing 20 Transportation
10-20 Clothes 5-15 Food 15-25 Entertainme
nt 5-10 Savings 10
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Its all about balance
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• Income Expenses
• Loans Fixed
• Work Flexible
• Savings Needs
• Wants
• List everything ----- Be reasonable

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• Books
• School Supplies
• Meals
• Entertainment
• Personal Care (haircuts)
• Laundry
• Phone, Cell, Internet
• Car
• Clothing
• Gifts

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Compounding

• 5 per day, every day
• 10 rate of return
• 45 years later

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• 1,700,000

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• Would that change your life?????

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Thank You
Paul A. Caiafa, CPA, MST Solakian, Caiafa
Company, CPAs, LLC Hamden, Connecticut
Financial Literacy Me, Myself, My Money